Published January 2002

Recovery to begin this year, economist says

By Mike Benbow
Herald Economy Editor

The economy in the Puget Sound area should begin to recover this year from the double whammy of a national recession and massive layoffs by its largest employer. But there will be a few bumps in the road.

That’s the opinion of John Mitchell, a US Bank economist, who spoke recently to members of the Everett Area Chamber of Commerce.

Mitchell noted that had he addressed the group in December 2000, “you’d be talking about how your 401(k) was doing.” “This year, it’s a 201(k),” he said.

A number of factors came together between then and now to push the nation to the brink of recession, Mitchell said. They include a decline in investment by businesses in new equipment and technology, a falling stock market, six hikes in interest rates and falling consumer confidence.

“We were flirting with a recession,” Mitchell said.

We were only flirting until Sept. 11, when terrorists delivered “a major shock” to the economy.

“It was sort of our generation’s Pearl Harbor,” said Mitchell.

He said the “bunker mentality” following the attacks made businesses, local and state governments and just plain folks stop spending money, sending the economy into a tailspin.

Of course, the virtual abandonment of air travel devastated the airlines and prompted the Boeing Co. to announce plans to lay off 30,000 people.

Mitchell cautioned the crowd that recessions are to be expected following such catastrophic and unpredictable events. We saw recessions after Pearl Harbor and even after Iraq invaded Kuwait.

“The business cycle is not dead,” he said, adding he believed the economy is at or very near its bottom and should be on the upswing soon.

Two good results of the recession, he said, are that energy prices have plummeted and inflation fears have vanished. Add that to repeated cuts in interest rates, federal government tax cuts and the need by businesses to fill long-depleted inventories and you have a stage set for recovery, he added.

“We may have gotten it right this time,” he said. “All these things will help eliminate the recession.”

But don’t expect to wake up one day and find that our long-stellar economy has returned. At least not the economy of old.

Mitchell said things will improve in fits and starts, led perhaps by a rising stock market. And he noted that the “new normal” will be a society that travels more by car and less by air, at least for a while.

“I don’t think the prospects for aerospace will turn anytime soon,” he said. “2002 is going to be a weak year.”

But there are some bright spots, he added, noting that technology and software companies should revive much sooner and that the housing industry hasn’t gone away.

“You Realtors, hey, we’re in the middle of a recession and you’re having a good year,” he said.

Mitchell said several major elements of the economy — trade, biotechnology and software — are all in down cycle.

“It’s a cyclical thing. I don’t think it’s a structural thing at all,” he said of the area’s economic problems. “They’ll be back.”

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